Owning foreign properties have few differences in tax benefits than owning your domestic property. Foreign property is a property that is purchased under your name on any foreign land and it can be used as your second home or vacation rental based on the owner’s convenience. The tax benefits depend on how frequently you are using the property and whether you use it for personal or commercial charges. If you have rented your foreign property, then it might have a different set of benefits. Let’s have a good look at the tax deductions you can gain from owning a foreign property.

Property Usage

The foreign property which you own can be anything of personal usage or rental. But, when it’s more like your second home, then you can take away the mortgage interest. This tax law is applicable for properties that were bought before December 16, 2017. The Tax Cuts and Jobs Acts clearly tell that you can opt for a few deductions but cannot cancel your whole property tax bill. But if you have doubts about the property, it is always better to get it clarified by tax reduction experts.

Tax deduction on rental property

Many homeowners would have bought a foreign property and rented it. For them, the deductions are a little complicated rather than having it for your second home. The rental has two categories:

  • Rent the home for less than 14 days or use the property for more than 14 days
  • Rent out the property for more than 15 days or use it lesser than 14 days

These two categories help a homeowner to decide their income. When it comes under the first category, the homeowners need not report it to the IRS. Since the property is used for fewer than 14 days, it will be considered a personal residence. 

When your foreign property is rented for more than 15 days, then you have to report it to the IRS. It is considered an active rental unit or business property. Reporting your rental income to IRS can give tax deductions on 

  • Mortgage interest
  • Foreign property taxes
  • Ad cost
  • Other utilities

These are some of the benefits of rental property. 

The Bottom Line

If you are already a property owner or planning to buy a property abroad, plan wisely based on the tax laws of that particular state. When you are buying a property from the U.S, then you might need to fill a number of tax forms depending on the type of property that you are purchasing. Some forms are FBAR, Form 5471, Form 8858, and much more. If you need professional help to sort tax laws and tax deductions, experts are always here to help.